Toyota’s relocation to Texas will, at a minimum, cost the city of Torrance about $1.2 million in annual tax revenue and affect about 3,000 employees. “When you look at the whole package, it’s difficult to be a business here,” said Torrance Mayor Frank Scotto.
Geez … why doesn’t California just throw in the towel and save us all the hard marketing work?
If you didn’t believe the value proposition of our Dallas Regional Chamber’s effort to lure business to Texas that began more than three years ago, you will believe it now. These relocations don’t just happen—they start months, if not years, in advance. Texas was ready and open for business, and we won big:
• A $300 million investment by Toyota
• 4,000 new jobs.
• Approximately $70 million in property tax revenue, with about the same amount in sales tax revenue
What did it cost Texas? $40 million from the Texas Enterprise Fund and a 10- year, 50 percent property tax abatement from Plano.
It also helps to have a governor that is very pro-business and not afraid to anger some other governors by visiting their states and using radio ads to sell the benefits of being in Texas, such as this one that ran in New York City (suggesting that the Big Apple really bites):
“Higher taxes. Stifling regulations. Bureaucrats telling you whether you can even drink a Big Gulp. If you’re tired of the same old recipe of over-taxation, over-regulation, and frivolous litigation, get out before you go broke. Texas is calling.”
Our Dallas Regional Chamber officials know that companies like Toyota want out of California for many of the same reasons:
• High taxes
• High cost of labor and operations
• Ridiculously high housing prices
• Unpredictable state politics
California tried to keep Toyota, but it’s just not possible to compete with the low cost of operations here. Our cost of living is about 40 percent lower than Torrance, where California’s personal income tax can be as high as 13 percent (as compared to zero here).
Case in point: We encountered this exact situation when providing site selection services to a financial services company that wanted to move its “financial center of excellence” in California to a location in Texas; they wanted validation that the decision would be financially viable.
The company occupied 50,000 square feet at a rate of $20 per square foot, and had 700 full-time customer support agents. In an attempt to retain the company and the jobs, the local California area economic development team put together an extremely competitive and aggressive offer: Stay in California, and the EDC would buy the company’s building from the existing owner and provide it rent-free to the company for five years.
After visiting several sites in Texas and reviewing this offer, the company still chose to relocate to Texas.
Breaking Down the Numbers
• Company leased 50,000 square feet in California
• Rental rate was $20 per square foot
• 700 full-time customer support agents
• The area EDC put together a public-private incentive group to buy the company’s building and provide it to them rent-free for five years.
California entry-level wage rate: $16 per hour
Texas entry-level wage rate: $12.00 per hour
Difference: $ 4.00 per hour
Rent:
California: 50,000 square feet at no charge = $0
Texas: 50,000 square feet @ $20 x five years = $5 million
Wages:
700 employees @ $4 per hour wage differential x 2,080 hours per year x 5 years = $29 million in reduced payroll costs.
Bottom Line:
$29 million in reduced payroll costs in Texas
-$ 5 million in rent paid for Texas office lease
$24 million in savings by relocating to Texas
I think Gov. Perry could even be more effective in places like Cleveland. Imagine the ad:
“Tired of shoveling snow, being robbed at gunpoint, and having the worst football team in the history of the NFL? Come to Dallas! We can help with two out of three.”
Don’t Mess with Texas.
Susan Arledge is the managing principal of Cresa Dallas and also heads the firm’s Global Site Selection Services team. Much of her knowledge about life and real estate comes from the many hours spent with fellow real estaters on the Katy Trail, where true wisdom always emerges. Her favorite trail advice so far: “Keep looking straight ahead and stay away from the dogs.”
